The business and culture of our digital lives, from the L.A. Times

Google envisions that Android phones will one day replace credit cards, its chief executive said Monday as he showed off a prototype of a mobile phone running a new version of Android.

This new version of Google's mobile operating system, which has the code name "gingerbread," will be out in a few weeks, CEO Eric Schmidt said at the Web 2.0 Summit in San Francisco. It will include near-field communication technology that could one day turn your smart phone into a digital payment system, he said: Basically, the phone contains a chip that lets you tap it to prompt real-world interactions, which in the future could include paying for something.

"People don't understand how much more powerful these devices are going to be," Schmidt said. But he cautioned not to expect that particular technology to roll out quickly.

"I expect to be carrying my credit cards around for quite some time," he said.

Schmidt demonstrated the technology while on stage. He bumped the phone to wake it up so it could pinpoint his location and provide information about the hotel where he was speaking. The camouflaged phone was "an unannounced device that I carry around with me," he said.

Tech observers are speculating that the mystery phone is the next Nexus -- the successor to the Nexus One, Google's Android phone -- called the Nexus S by Samsung. Schmidt would not give any details about the phone, but hinted that a Nexus One successor could be in the works. When asked about previous comments downplaying the possibility of a second Nexus, Schmidt said: "I said there would never be a Nexus Two."

The near-field communication chips transmit signals over short distances. That gives smart phones the ability to be used in place of credit cards, for example, by broadcasting data to devices that speak the same language. For example, in a store, you could "bump" your phone on an NFC sensor and pay for your purchase without having to open up your wallet.

A number of companies, including EBay's PayPal and Jack Dorsey's Square, are developing technologies that let people tap or swipe their phones to make purchases. Google has been hinting at its growing interest in commerce. The Internet search giant is said to be about to roll out online women’s fashion boutiques.

Schmidt said that mobile payments are promising because the technology reduces the risk of fraud. "The credit card industry thinks the loss rate is going to be much better," he said.